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Online Black Scholes Calculator

The Black Scholes equation is a partial differential equation, which describes the price of the option over time. In the financial world, a derivative is a financial instrument, whose value depends on the value of other, more basic, underlying variables. Very often the variables underlying derivatives are the prices of traded assets. A stock option, for example, is a derivative whose value is dependent on the price of a stock.

Stock Price (S):
Strike Price of Option (X):
Time to expiration in years (T):
Risk-free interest rate (r as %) ? Interest Rate Annual continuously compounded risk-free interest rate. :
Dividend Yield (q as %) ? Dividend Yield The stock's annual continuously compounded dividend yield :
Volatility (σ as %) ? Volatility σ = annual stock price volatility. :

This tool is AS IS. Use it on your own risk This is not a professional tool.
Call Put
Price 0 0
First-Order Greeks
Delta (Δ) Delta (Δ) The delta of an option or a portfolio of options is the sensitivity of the option or portfolio to the underlying.
It is the rate of change of value with respect to the asset

The delta of a portfolio of options is just the sum of the deltas of all the individual positions.

Delta hedging means holding one of the option and short a quantity ∆ of the underlying.
Delta can be expressed as a function of S and t. This function varies as S and t vary.
This means that the number of assets held must be continuously changed to maintain a delta
neutral position, this procedure is called dynamic hedging.
Changing the number of assets held requires the continual purchase and/or sale of the stock.
This is called rehedging or rebalancing the portfolio.
0 0
Vega (ν) Vega (ν) As with gamma hedging, one can vega hedge to reduce sensitivity to the volatility.
This is a major step towards eliminating some model risk, since it reduces dependence
on a quantity that is not known very accurately.
Theta (Θ) Theta (Θ) The theta is related to the option value, the delta and the gamma by the Black-Scholes equation.
In a delta-hedged portfolio the theta contributes to ensuring that the portfolio earns the risk-free rate.
Rho (ρ) Rho (ρ) Rho, ρ is the sensitivity of the option value to the interest rate used in Black-Scholes 0 0
Lambda (λ)
Second-Order Greeks
Gamma (Γ) Gamma (Γ) gamma is the sensitivity of the delta to the underlying it is a measure of by
how much or how often a position must be rehedged in order to maintain a delta-neutral position.

Since gamma is a measure of sensitivity of the hedge ratio ∆ to the movement in
the underlying, the hedging requirement can be decreased by a gamma-neutral strategy.
This means buying or selling more options, not just the underlying.

Because the gamma of the underlying (its second derivative) is zero,
gamma cannot be added to position just with the underlying.
We can have as many options in our position as we want,
we choose the quantities of each such that both delta and gamma are zero.
Third-Order Greeks
Assumptions of the Black and Scholes Model:
  • European exercise terms are used
  • Markets are efficient
  • No commissions, transaction costs or taxes are charged
  • Interest rates remain constant and known
  • Continuously compounded returns are lognormally distributed and independent over time
  • The volatility of continuously compounded returns is known and constant.
  • Future dividends are known, either as a dollar amount or as a fixed dividend yield.
  • The risk-free interest rate is known and constant.
  • It is possible short-sell costless and to borrow at the risk-free rate.
The Black and Scholes Formula Black Scholes formula
Example The stock of OptCal Co. currently sells for per share. The annual stock price volatility is 0.1, and the annual continuously compounded risk-free interest rate is 0.04. The stock's annual continuously compounded dividend yield is 0.01. Based on the Black-Scholes formula what are the price of a call and a put option on OptCal Co. stock with strike price and time to expiration of 2 years.

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Contact for optimised verilog code. Calculates a result for each clock.
φThe standard normal probability density function.
ΦThe standard normal cumulative distribution function.
SStock Price
XStrike Price
rRisk-Free Rate
qAnnual Dividend Yield
τTime to Maturity τ = T-t
d1 Call Value
d2 Put Value
Calls Puts
value (V) Call Put
delta Delta Delta Call Delta Put
vega Vega vega
theta theta Theta Call Theta Put
rho rho Rho Call Rho Put
Gamma Gamma gamma
vanna Vanna vanna detailed
charm charm Charm Call Charm Put Detailed
speed Speed speed
zomma Zomma zomma
color Color color detailed
veta Veta veta detailed
vomma Vomma vomma
Ultima Ultima ultima detailed
dual delta Dual Delta dual delta
dual gamma Dual Gamma
The difference between an American and European option is that the American option can be exercised at any time, whereas the European option can be liquidated only on the settlement date. The American option is "continuous time" instrument, while the European option is a "point in time" instrument. Options are just tools to evaluate underlying assets contingent to a specific event, or viceversa to understand the probabilities implied in the price that an event will happen. The strength of the results is directly correlated to the quality of the inputs used in the model.

An option is a derivative that specifies a contract between two parties for a future transaction, known as an exercise, on an asset at a reference price. The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfill the transaction. There are two types of option. A call option gives the holder the right to buy the underlying asset by a certain date for a certain price. A put option gives the holder the right to sell the underlying asset by a certain date for a certain price. The price in the contract is known as the strike price. The date in the contract is known as the expiration date. European options can be exercised only on the expiration date. American options can be exercised at any time up to the expiration date. The binomial options pricing model of black scholes option pricing model Trinomial tree, a similar model with three possible paths per node is black and scholes excel formula. Tree (data structure) Monte Carlo option model Real options analysis and black-scholes calculator or black-scholes formula Quantum finance, quantum binomial pricing model is black-scholes model. Mathematical finance black-scholes example of Employee stock option #Valuation

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This work involved calculating a derivative to measure how the discount rate of a warrant varies with time and stock price. The result of this calculation held a striking resemblance to a well-known heat transfer equation. Soon after this discovery, Myron Scholes joined Black and the result of their work is a startlingly accurate option pricing model. Black and Scholes can't take all credit for their work, in fact their model is actually an improved version of a previous model developed by A. James Boness in his Ph.D. dissertation at the University of Chicago. Black and Scholes' improvements on the Boness model come in the form of a proof that the risk-free interest rate is the correct discount factor, and with the absence of assumptions regarding investor's risk preferences. Assumptions of the Black and Scholes Model: 1) The stock pays no dividends during the option's life Most companies pay dividends to their share holders, so this might seem a serious limitation to the model considering the observation that higher dividend yields elicit lower call premiums. A common way of adjusting the model for this situation is to subtract the discounted value of a future dividend from the stock price. 2) European exercise terms are used European exercise terms dictate that the option can only be exercised on the expiration date. American exercise term allow the option to be exercised at any time during the life of the option, making american options more valuable due to their greater flexibility. This limitation is not a major concern because very few calls are ever exercised before the last few days of their life. This is true because when you exercise a call early, you forfeit the remaining time value on the call and collect the intrinsic value. Towards the end of the life of a call, the remaining time value is very small, but the intrinsic value is the same. 3) Markets are efficient This assumption suggests that people cannot consistently predict the direction of the market or an individual stock. The market operates continuously with share prices following a continuous Itô process. To understand what a continuous Itô process is, you must first know that a Markov process is "one where the observation in time period t depends only on the preceding observation." An Itô process is simply a Markov process in continuous time. If you were to draw a continuous process you would do so without picking the pen up from the piece of paper. 4) No commissions are charged The Black and Scholes Model: Delta: [Delta] Delta is a measure of the sensitivity the calculated option value has to small changes in the share price. Gamma: [Gamma] Gamma is a measure of the calculated delta's sensitivity to small changes in share price. Theta: [Theta] Theta measures the calcualted option value's sensitivity to small changes in time till maturity. Vega: [Vega] Vega measures the calculated option value's sensitivity to small changes in volatility. Rho: Usually market participants do have to pay a commission to buy or sell options. Even floor traders pay some kind of fee, but it is usually very small. The fees that Individual investor's pay is more substantial and can often distort the output of the model. 5) Interest rates remain constant and known The Black and Scholes model uses the risk-free rate to represent this constant and known rate. In reality there is no such thing as the risk-free rate, but the discount rate on U.S. Government Treasury Bills with 30 days left until maturity is usually used to represent it. During periods of rapidly changing interest rates, these 30 day rates are often subject to change, thereby violating one of the assumptions of the model. 6) Returns are lognormally distributed This assumption suggests, returns on the underlying stock are normally distributed, which is reasonable for most assets that offer options. http://hilltop.bradley.edu/~arr/bsm/pg04b.html Applications of B-S PDE We can compute V analytically for: vanilla call and put options, binary call and put options, call and put options on the foreign exchange market. We cannot compute analytically but can solve B-S PDE numeric ally for: options with non-standard payoffs, American call and put options, Asian options, some other complicate contingent claims. The Black-Scholes option pricing model is a highly regarded theoretical option pricing formula in significant use today. Traders should be familiar with how it works. The Black-Scholes option pricing model may be the most used and best known theoretical option pricing model among several developed in recent decades. In simplest terms, it is a mathematical formula intended to determine the price of an option (or warrant) relative to multiple inputs, like a stock’s price, or volatility, or the risk-free interest rate. Said another way, it’s a tool that tells traders if an option is overvalued or undervalued at its current price. One of the inputs - a stock's volatility – is sometimes arbitrarily determined It can overvalue deep out-of-the-money calls, yet undervalue deep in-the-money calls. It assumes the risk-free rate and the stock's volatility are constant. It assumes stock prices are continuous and involatile It assumes a stock pays no dividends It assumes the option will not be exercised until expiration day
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